Little known facts about Old Age Security you need to know
How much will Old Age Security pay me?
When should I take Old Age Security benefits?
How does Old Age Security income factor into my other income plans/needs for retirement?
Let’s face it – when it comes to government benefits – what-to-take-when and how-much-will-you-get-when – these answers are an important part of your financial plan.
Luckily you have this site to lean on for some answers!
Previous articles on my site related to Old Age Security (OAS) have provided some answers to a few of these questions and more:
What is Old Age Security – is it time to overhaul this program?
What are some retirement withdrawal strategies to consider – should you defer OAS inflation-protected income?
If you decide to defer OAS should you defer you Canada Pension Plan (CPP) benefits as well?
Here are some fast facts about OAS – little things you need to know:
- Canada’s largest pension program – funded by general tax revenues. This is not a contributory plan like CPP is.
- A sum of money designed to provide a minimum quality of life for older Canadians.
- A monthly payment available to most Canadians aged 65+ who meet legal status and residence requirements. It is determined by how long you have lived in Canada after the age of 18.
- You *must apply to the program to receive the money. (*Actually, some people are now approved for OAS in advance, and must let Service Canada know if they want to defer. My understanding is that automatic approval applies to anyone receiving their CPP before age 64 and who have 40 or more years of CPP contributions. You can contact Service Canada for details.)
- OAS is unrelated to employment history.
- OAS payments are indexed to inflation (quarterly) using the Consumer Price Index.
- Regardless of your marital status, the maximum payment amount is about $601/month** (**Current at the time of this post.)
- OAS payments are considered taxable income and this income is subject to recovery tax (the “OAS clawback”) if your individual net income is beyond a particular threshold. Seniors must pay some or all of their OAS income back if their annual income is > $75,910 for the 2018 tax year (> $77,580 for the 2019 tax year. This clawback is also indexed annually like federal tax credits and personal tax credits.
Now that you have the low-down on OAS, there are some little known facts about OAS I thought you should know. To assist with this post, I asked Doug Runchey to come back to the site. Doug is a CPP and pension specialist who has more than 30 years of experience working with both CPP and OAS programs.
Doug, government benefits like OAS are always a hot topic with Canadians. These conversations are getting more heated given not everyone has a government pension or a defined benefit pension from work. This makes OAS a very valuable program for many Canadians. But many Canadians don’t know they can defer OAS payments – they simply assume they should take it at age 65 – as soon as possible.
Some Canadians don’t know this fact: by voluntarily deferring OAS benefits until age 70, Canadians can increase their OAS payments by a whopping 36%.
Why are so many Canadians hesitant to defer this particular inflation-protected benefit?
Great questions Mark and very important ones for Canadians to answer.
I believe there are two big reasons for the relatively small number of people deferring their CPP and/or OAS:
- There are “money on the table people” – these people are afraid that they won’t live long enough to recoup the money that they deferred to get the higher monthly pension payment.
- There are “bird in the hand people” – these people know what they are eligible for now, but they’re afraid that the government will change the rules if they wait.
Most Canadians are in group 1 or 2 or are a combination of both!
So if a retiree could choose then, which program to defer, what are the main reasons to defer CPP instead of OAS?
I think it’s important to recap the reasons why you could defer either program or both programs or none of the above in this post:
Why should you defer your government benefits including CPP to age 65 or 70.
|Essentially, you take CPP or OAS or both as early as possible, because:||You may consider taking CPP or OAS or both as late as possible, because:
|· you need the money to live on now (probably the biggest reason)!
· you have good reason to believe that you have a shorter-than-average life expectancy;
· you already have a good reliable defined benefit pension with full indexing – so CPP and OAS are really “the gravy” – such that you want to leave a legacy; take the money now and invest it.
|· you don’t really need the money now; you can reasonably defer it;
· you have good reason to believe that you have a longer-than-average life expectancy;
· you don’t have a reliable defined benefit pension with full indexing, so CPP and OAS are integral to your inflation-protected, fixed-income financial well-being;
· you wish to drawdown some or all personal assets (e.g., RRSP assets, non-registered assets) and transfer the market risk away from you to the CPP or OAS;
· you aren’t concerned about leaving a large estate – enjoy your personal assets first!
When it comes to deferring CPP instead of OAS – people need to consider this:
CPP payments have a benefit bump of 42% if Canadians wait until age 70 to take their CPP benefit (versus 36% for OAS benefits starting at age 70). So, all things being equal it makes more sense to defer Canada Pension Plan versus Old Age Security.
Another little known consideration, why someone might defer CPP but not OAS: they are still working Mark.
Canadians can increase their future CPP benefit payments working in their 60s due to the extra year(s) of maximum earnings/contributions – in addition to the 42% increase for the 5-year deferral to age 70.
Great stuff Doug – you’ve validated my thinking on a few things long-term!
So, are both CPP and OAS benefits clawed back? I think some Canadians get this wrong.
I think what confuses Canadians Mark is that both CPP and OAS are taxable income, but only the OAS is subject to a 15% surtax (affectionately known as the OAS clawback you mentioned above) if your income exceeds the yearly threshold ($75,910 for 2018).
Now, if you believe you might be subject to any OAS clawback, then this could be another good reason to defer your OAS (regardless whether you do or don’t defer your CPP), especially if you expect that your income from other sources might be lower after age 70.
I recently read about this little known fact: should you apply to defer OAS and then suddenly pass away before your benefits begin, the executor of the Will can apply to begin the deceased pension with an effective date one year prior to death. Is that true? What are the benefits of this provision for couples?
Yes, it’s true Mark; that the Estate can receive up to 12 months of OAS if someone hasn’t applied for OAS prior to their death (the same is true for CPP, but only if they are over age 70 when they die). I personally don’t see this as a factor in deciding whether to defer or not though.
Some Canadians don’t know this fact: does OAS have a survivorship benefit like CPP does?
OAS payments end with the month of death, and there is no survivor’s benefit at all under the OAS program (unless you consider the Allowance for a survivor as a survivor’s benefit, which I don’t). This Allowance is a bit complicated (it’s essentially for lower-income Canadians) so that’s a post for another day!
What Canadians need to know is, the same rules for what is considered income for Guaranteed Income Supplement (GIS) purposes apply to the Allowance for the Survivor.
Now, I should add, when it comes to survivorship benefits for CPP – there are two main formulas used; depending upon the survivor’s age follows:
- If/when the survivor is under age 65, the amount is 37.5% of the deceased pensioner’s “calculated retirement pension”, plus a flat-rate-benefit of $189.31 (for 2018);
- If/when the survivor is age 65 or older, the amount is 60.0% of the deceased pensioner’s “calculated retirement pension”.
Without getting too technical, “calculated retirement pension” means the amount of the deceased contributor’s CPP before any decrease or increase for the age-adjustment factor if they took their CPP before or after age 65. There are more details about this to come in future blogposts.
Good details once again. Alright, so you’re approaching age 65. You’re still working full time or even part time. Should you take OAS starting at age 65?
I believe if you’re still working after age 65, you should consider deferring your OAS especially if your current income is above the OAS clawback threshold.
Working beyond age 65 might also be a reason why you might defer your CPP (especially if your current earnings will increase your “calculated retirement pension”) or it might be a reason to take your CPP at age 65 (especially if your “calculated retirement pension” is already at the maximum amount and you want to opt out of making any further CPP contributions (especially if you’re self-employed and paying both portions of the CPP contribution)).
I’ve heard about this: some retirees worry about being underpaid by CPP and that might occur to OAS – can that really happen? What little known fact can you share on that?
The main reason why some people are being underpaid by CPP is that their recent earnings information is not available to Service Canada when their CPP is initially calculated, and Service Canada sometimes appears to “forget” to recalculate their CPP once they receive those earnings/contributions details from Revenue Canada.
This never happens to OAS benefits because it is based on the number of years of residence in Canada as claimed by the person at the time of application.
Some Canadians don’t know this fact: while pension splitting is a great approach for many couples to save on tax, can they use OAS income for pension splitting purposes?
They cannot Mark. Neither CPP nor OAS qualify for “pension splitting” under the Income Tax Act, but CPP has its own provision of pension sharing (officially known as an Assignment of CPP benefits). This pension sharing provision under the CPP is a two-way sharing of CPP benefits (unless only one spouse was a CPP contributor) that uses a fixed formula based on how many years the couple has lived together in proportion to their “joint contributory period”. The pension sharing is a temporary reallocation of their CPP benefits mainly for tax purposes, and it ends automatically upon the death of either spouse or earlier upon request of either spouse.
Great stuff Doug. I want to thank Doug again for his insights and expertise in this post. I look forward to posting more articles about OAS and other pension-related articles with Doug in the future!
Doug Runchey is a fan of My Own Advisor and a pension specialist who has more than 30 years of experience working with both CPP and OAS programs. Doug contributes to many Canadian financial forums and writes pension-related articles for many financial blogs. He runs DR Pensions Consulting (no affiliation) and is committed to helping people understand the government pension puzzle.
Got further questions about OAS? Leave them in a comment and we can tackle them here are maybe cover them in a future blogpost. Thanks for being a fan.
Thank you for this informative article.
I have a question I’m hoping Mark or anyone else can help me with.
I have a friend who is single and is turning 65 in May 2021. She is looking to withdraw her RRSP in 2020 to do some home renos and get a more reliable car; in order to get comfortable for retirement.
I understand that the OAS/GIS payment for the period of July 2021 to June 2022 is based on the 2020 income year. However, i also understand that a provision is possible to base this on the current year (at that time 2021). Is my client eligible for such a provision based on her 2020 income being high due to RRSP withdrawal? The idea of course is to maximize her OAS/GIS.
Any help is greatly appreciated.
This table might help Toni, if I understand your question:
Essentially you can maximize GIS and OAS by having little to no other taxable income.
Ed Rempel wrote about an interesting approach here:
I’m not sure I’m fully aware of any provision you speak of but maybe one exists! Are you referring to this?
Thanks for your prompt response Mark.
Please allow me to clarify my question as I’m not sure I communicated correctly.
Here is the situation. A single senior will turn 65 in May 2021 when she plans to retire. She has some RRSP which she’s planning to take out in 2020 (a year prior to her retirement). GIS is normally calculated based on income from the previous tax year. RRSP withdrawal will make her 2020 income high, which would disqualify her from GIS. My question is: If she submits an income estimate for 2021 and asks that her GIS be calculated based on that, rather than the previous tax year income, would this be accepted by Service Canada?
Specifically, Section F of form ISP-3025 has the possibility of GIS being calculated based on current estimate income (vs the standard previous year income.). It is just not clear if RRSP would qualify.
Humm, not sure entirely Toni and thanks for your question and clarity. Have you tried to talk to a rep at Service Canada so you know their rules?
I don’t personally see any reason why RRSP withdrawals would not qualify as income in any tax year. But, best check with folks who make the rules!
I hope I didn’t miss this,.. if someone already mentioned this my apologies. But if I remember Fred vittesse correctly, he stated for cpp it was a 7% increase along with an (inflation) adjustment. Thats a good return!
Also for cpp survivor benefits, what was written earlier was correct but the survivor has limits to what they can receive based on their own cpp amounts. Someone can correct me if I’m wrong here but my understanding is that you can’t receive more than the full benefit amount whatsoever. Eg if both partners has full cpp pay and one died there would be no increase for the survivor. If one partner had full cpp and the other nothing, if the cpp payee dies first the survivor would get 60% of what was being received.
I have factored this sort of benefit into my planning, it can affect choices when involving salary vs dividend debate. Has anybody else used this in their planning?
Nice to hear from you Phil.
Vettese seems like a very bright and straight-up guy by all accounts. I like his books.
Correct, re: CPP survivor. I didn’t get into details because that’s another post and set of circumstances entirely.
I personally haven’t gone there yet because I’m in my mid-40s and I hope I have another 10-20 years of saving and investing before full-on retirement, let alone taking CPP at 65 or so and OAS at 65 or even 70. I’ll definitely factor that into any estate planning and portfolio planning in my 60s though.
You Phil? How is the portfolio coming along?
Quick question about GIS for seniors. My mom started collecting OAS at 65 but worked very little her whole life so her CPP is only around $100 a month. She has never received GIS payments. Is that something you need to apply for or would it automatically be added if you qualify. I don’t know what my step dads income is but I don’t think he is making over the GIS qualifying amount. It is possible he might be getting GIS payments. Can both spouses receive GIS or is it just one per household? How does all that work.
My understanding David is, like OAS, they (Service Canada) now enrolls automatically seniors who are eligible to receive the GIS. If you can be automatically enrolled, Service Canada will send you a notification letter the month after you turn 64.
If they didn’t get a letter or any information by age 65, then I would have them call Service Canada and get the requisite paperwork together to apply for GIS.
As for spouses, OAS, CPP, GIS are individual-based, however, eligibility also depends on whether the combined income of you and your spouse or common-law partner, if you have one, exceeds a specific amount since pension splitting is allowed.
Have a few Google searches help you out, re: Service Canada. Most of the stuff should be there and a phone call to them should help clarify.
Thanks for being a fan David and good luck!
It’s interesting on the many different views of OAS and I guess taxes in general.
As you noted as the first point of this article: “Canada’s largest pension program – funded by general tax revenues”. That means part of my taxes have gone towards this. If I don’t get something back out of it, then it just means I’m subsidizing other people. I’d also like to add, that I’m already doing some of that with our progressive tax system. This opens up a huge ball of wax with a general discussion of our tax system and might be a good topic for one of your articles (not sure if you’ve dome it already or not).
I feel fortunate (but have worked very hard and earned every cent) and don’t mind helping out a bit (actually a lot for the truly unfortunate and do through charities as well) but I also am quite pissed at how much money our government wastes and how many people abuse the system, freeload on it, etc, etc,
Well, our taxes go to many, many things – of which our taxes go to OAS is just a small sliver – but I know what you are saying Don 🙂
I have no problem any senior getting some OAS – in fact, I think there should be a merger with GIS to clarify the programs and such but I do struggle, a bit, as you know with any senior making over $100K (per person) and yet they are entitled to income security in old age (re: old age security). I simply think the program can be adjusted some.
This would actually help avoid our government wasting more money…since we are aligned, there is significant waste!!
All the best and thanks for providing great comments.
@RBull, thanks for the information of dividend raises with ACO.X and CU. I have a few hundreds of each, and am happy for more income coming my way.
I have also noticed quite a few stocks slowing their dividend increase since last year. Both ACO.X and CU has 10% increase last year. EMA and SAP both had a lower increase last time comparing to previous increases. Also, we are expecting banks will not grow so fast any mroe for next few years? I feel that I should lower my expectation of organic investment income growth. And maybe I should adjust my investment plan to concentrate more on growth stocks. As I am close but not yet retiring yet, maybe I will continue to look at how I should invest and make some adjustment along the way.
I suspect, although I don’t know for sure, dividend increases to slow/be lower over time.
I will still take lower dividend increases over time than the hope of just capital gains, although a $1 paid in dividends is effectively the same as $1 in growth.
This is why I’m a hybrid investor – I feel I get the best of both worlds.
You’re welcome May. I’m happy as wellwith getting a raise. Perhaps it means even more when we’re living from it in retirement. I’m sure we’ll have more raises coming soon. I know CU has a 10 year avg of 10% div increase, so the 7.5% is great but lower. Emera put out guidance they would be targeting 4-5% over the next several years. IIRC Fortis says 6%. I think to ensure they don’t overextend themselves with significant debt and rising interest rates. Everything I’ve read is that our banks should be good for 6-8% growth for a while and dividends will probably fall close to that. I don’t pretend to know myself but I think its wise to both lower expectations of the amount of dividend growth into the future, and to seek some growth stocks, but I still like to get paid something. That helps with an income floor. For equities I own all of the US and X US (world) with broad market ETFs and 1 other for each that are stronger div payers to give a tilt that way. But also have ~40%cash/FI so my expectations are relatively and intentionally low.
Yep! was quoted from GT – himself! and BTW with permission! I could not have said it any better myself! Take it early and invest it! Not everyone like Bull is going to live to 125!
Bull Says: “Not many of us can predict our expiry date as accurately as Mike can”
THATS why you take it early! (shaking head)
I am 66 and have received both CPP and OAS payments since eligible at age 65.
My question…Is it too late to defer either CPP or OAS or both?
My understanding is once you’re on the books Ian, getting benefit payments, you cannot stop it. Is there a reason you want to now?
I would have to contact Service Canada to confirm my logic though!
OK – some of these comments have really hit a sensitive spot with me. I totally disagree with suggesting that seniors with “higher” income should be taxed more and have more OAS clawback and have TFSA income count towards net income, etc.
For background (as some may already know), I’m almost 66 and been retired for 5.5 years without any company pension. My wife is almost 62 and was always stay at home to focus on the kids, do volunteer work .etc. I took my CPP and OAS early at 60.5 and 65 years old. The maximum salary I ever made was $120k (which sounds like a lot but don’t forget that’s our total household income). I worked really hard my entire life – long unpaid hours, travelling lots – 30-35 trips a year, etc. My wife and I have had a great life and have been very blessed but we also have a very simple lifestyle. We still live in our 1982 starter home, drive an 8 year old Civic, etc. Our holidays are, and always have been, almost all camping trips (which are very inexpensive). Our activities are mainly outdoor stuff – hiking, running, walking, x-c skiing, biking, spending big time with the grandkids, etc which are also all inexpensive.
Anyway, we have saved a bundle and are trying to drawdown my wife’s spousal RRSP and my RRIF. We can’t do it fast enough as we have such solid dividend income/growth investments that the portfolio keeps growing. At this point, I think we will be into OAS clawback when my wife turns 72.
So, my point is, why should we be penalized for being such good savers and investors when they are so many people out there living beyond their means and having big debt. and even going so far as to “manipulate” the system to collect GIS and whatever.
PS – one additional point to fit in with the OAS discussion is that I took my OAS and CPP as early as possible (and my wife will take her OAS right at 65) as I can see some OAS clawback coming so may as well get as much as we can now. (plus I am also a bird in the hand guy especially on the OAS with how our government is messing up and could cause changes in the future)
Don, try calling the Gov – you will be on hold for hours. That is if you don’t get a busy signal!
I to – will be taking CPP & OAS early (its the smart thing to do). People who did not plan properly for retirement – are those looking for ways to increase CPP & OAS. If you have to worry about what to do with both – then you did not plan properly. Its only spending money for me.
Nice to hear from you. How she go these days?
Quite the discussion you have going with RBull & Lloyd. I have a lot in common with them and Cannew and a few others but generally, I find that your strategy and approach to investing is the closest to mine as anyone on this board.
We’re the same in that CPP & OAS are just spending/extra inheritance for us as well but I always think that the gov’t wastes so much of the taxes that I’ve paid over the years that I should try and get as much back as I can. I definitely don’t owe them anything with how poorly they’ve done.
Take her easy
If you have a lot in common with Cannew – then your doing great! Can’t wait to buy his book! (Mark – where’s the link to buy it?). As for Lloyd – we are starting to respect one another. As for his side kick – I wish he would just blow Lloyd some kisses and get over it! As for me – I actually hold back with some comments as TIME is more important to me. But willing to help when I can.
“As for Lloyd – we are starting to respect one another. ”
You’d be incorrect, again/still.
Actually – your right! I don’t respect someone that owned AX.un (and sells after they cut their div) or someone that owns $400K in dead GICs. Thanks for correcting me Lloyd!
Mike – enough with the negativity and personal shots.
I’ve warned you before, keep your comments civil – otherwise you’re off the site.
Final warning, thanks for helping out on your end.
lol…I’ve never owned AX.UN. You’re confused…..again…..still.
“Thanks for correcting me Lloyd!”
Nothing wrong with taking CPP and OAS early – just that some folks don’t know and don’t consider options in life.
Don – nothing wrong whatsoever with how you have done/amassed some good wealth. I mean, kudos!
My point about OAS is, given the income it provides up to the range of income it provides: does any senior making > $100K per year need a government handout? I would be shocked if anyone agreed.
OAS clawback means you worked hard, you saved enough. Which is awesome. I think OAS could be clawed back for some, in the $75K-$90K per person range but really – does any senior need any taxpayer money making north of $100K per year?
Let’s chat if so 🙂
Arguably you could be a millionaire and manipulate GIS to earn that too. It’s not right is it? That program needs to be looked at too.
I would not say “manipulate” is correct. There is a Gov program (with rules) and you can do things to make sure you get what they are offering. (and what they say you are entitled to). This is smart!. AND – Its our money we over paid in taxes anyway.
I don’t think of OAS as a handout. I think of it as getting some of my over-blown taxes back.
I also would think that if a millionaire somehow is getting GIS, then they will eventually have to pay larger taxes on the settling of their estate (unless maybe if they are just sitting in cash which would mean foregoing potential extra investment income).
Every case and person is different but I’ve cranked our numbers with the first goal being to make sure the money lasts (no problem there) and the second being to minimize lifetime taxes (as compared to short term taxes). This is why we’re doing what we’re doing.
“…Every case and person is different” – totally agree.
I think your goals are great Don. I guess I just struggle with the design of the OAS program.
I can relate to working very hard for a lot of years Don, finally having some good registered assets to draw down and not wanting to pay more taxes. This is partly a reason we are likely to defer govt benefits to be able to draw these assets down at a faster rate beforehand, and smooth taxes.
Fair comments and its good to have other opinions on these subjects. Even though some changes to OAS I mentioned would have and could well in future affect us negatively I still think its the right thing to do. OAS is one of our most expensive programs and sending seniors welfare to high income earners just doesn’t seem right to me. The part of TFSAs considered as income I am concerned with is those deferring the spending of their own registered assets and instead gaming the system by utlilizing TFSAs allowing them to qualify for GIS (gaming the system). Perhaps you missed the post MIKE made about his plan to collect GIS.
Bull you should get into politics. LOL
Too much BS for me.
None of the changes I mentioned will likely ever happen. Politicians are more concerned about the next election and don’t have a track record of removing removing or adjusting programs. They like to tax and spend.
Agree. Politicians think, act and make decisions for short-term gain (i.e., next election).
Hi. I’m already on CPPD & ODSP, can I start anytime after I become the age of 60, or do I need to wait till I am 65 to get the CPP & OAS? I am 57 for a couple more months and wondering what I should be doing.
My wife is on CPP disability and it will run until she is 65 and then automatically be changed to regular CPP. It will be less. I am not familiar with the other program.
My understanding is: current OAS rules – you can start OAS at age 65. As for CPP, you can apply as early as age 60.
Please check out Service Canada for any details on the conversion of your CPPD to CPP though!
“Most of us don’t stand a chance in hell of collecting $13,600 a year in CPP. The average is $670 a month. Therefore waiting until you’re 70 to collect less than $300 a month more means giving up $40,000 in CPP payments over five years (from age 65) or almost twice that if you wait ten years. Seriously? How does that justify not having the use of forty or eighty thousand bucks for years and years just to collect $75 more a week a decade before you expire?” – AND – don’t get me started on the OAS. Take the OAS right away!!!!
I know I’m going to regret it but your numbers don’t jive. I was hoping that someone else would point it out but letting it stand would do a disservice to other readers.
My numbers add up!
Here’s another timbit: A person today who’s earned 30K or so their entire career has almost the same income in retirement as somebody who never worked at all with CPP, OAS & GIS. Why would you want to pay into the CCP program – if the GIS will cover you?
Just take it early and shove it into your TFSA – invest it properly and get ahead of those who wait 5-10 years hoping the plan stays the same and that they don’t die b4 seeing a chq.
Mike, there are volumes of productivity benefits to society from working vs. not working at all re: contributing to CPP. It’s not a question about paying into or not paying into CPP.
My post was about considerations to take your OAS at 65 or later and what that could mean associated with other factors. It has nothing to do with working or not and collecting GIS.
“My numbers add up!”
I’ll try and explain this using my calm youth bowling coaching voice. Perhaps the numbers add up but they are based on erroneous information so they are not correct. $670 X 12 X 5 = $40200. No problem. Doubling that to “eighty thousand bucks” is also correct math. The problem arises when we factor in the RULES for taking CPP prior to age 65. In order to begin CPP at 60, one has to, at the very least, accept a 7.2% per year reduction in benefits. So at age 60, your $670 now becomes (670 X .64 = 428.80). Now take that 428.80 and expand it to your ten year factor, we get 428.80 x 12 x 10 = 51456.00. I hope I don’t have to do the math on the difference between the “eighty thousand bucks” and this figure. Now this does not take into the consideration that *possibly*, if a person stops working at 60, they might have additional changes in entitlements due to the reduced contribution period.
Suffice to say, whilst your point has some validity, for some people, in some cases, it is not as carved in stone as you make it out to be. It behooves people to be as clear as possible when presenting an option and accuracy is paramount.
Lloyd, those aren’t Mike’s numbers, he just copied/quoted/ripped off a portion of Garth Turner’s January 2 post.
Seriously? I’m not a fan of Mr Turner but I’m gobsmacked that he would make such a fundamental mistake with the CPP program. Is it misquoted or somehow manipulated? Mike did use “My” numbers.
Oaky, found it. Yup, pretty well copied and pasted so Mr Turner owns that faux pas. I guess I fell for an oldie but goodie gag….
You can disregard Mike, they’re not your numbers.
Great catch Purrfect. I should have caught that as I read that Turner piece too and noted the math error and questionable logic. Pretty funny how it got repeated here almost verbatim! Note for the future.
Lloyd, Turner is often fast and loose with numbers when he’s pushing some opinion of his. He’s a great writer and entertaining at times, but his biases are often overt and sometimes lead to questionable conclusions.
” Turner is often fast and loose with numbers when he’s pushing some opinion of his. He’s a great writer and entertaining at times, but his biases are often overt and sometimes lead to questionable conclusions.”
Are you sure – your not talking about yourself? except – the great writer part?
Mike – enough with the negativity and personal shots.
I’ve warned you before, keep your comments civil – otherwise you’re off the site.
Final warning, thanks for helping out on your end.
If Mr Turner is incompetent enough to make such fundamental error in CPP, then I’d be hesitant to continue reading his stuff (obviously I don’t) or quoting his stuff. It would take a *special* kind of person to promulgate incorrect information on a blog designed to foster financial learning.
Mike, no I was speaking about Turner. The post you copy/pasted is simply one of numerous examples to prove my point. Not sure how anyone can miss that, but then again it seems you drank his cool aid on this.
If you have something factual and accurate to point out where I’ve been biased and that led to questionable conclusions go for it. I’ve owned up to where I’ve made a mistake on here at least once I recall. I also work hard to not make definitive statements about claiming to know whats best for others, regardless of their situation.
Concerning my comment on others not being able to predict their expiry dates like you clearly it went right over your head. That’s okay.
I encourage others on here to judge for themselves; comment away on what posts make sense, and what posts and posters add value and accuracy to this blog.
Have a good one.
Regarding Garth Turner, I am a client but do not necessarily agree with everything he says, including taking CPP early which is a huge wild card. He is a good man and did bring forward the motion to implement t
Good to know Purrfect.
I’ve met him and a colleague of mine for many years, was a protege of his in his career prior to politics. I agree he’s a good man and can have some good ideas and insight, but sometimes just too myopic, and loose with facts to make a point.
GT never made an error. Have side kick run the numbers for you (LOL). – AND – you both can thank GT for the TFSAs = His Idea! You guys are comical!
Lloyd says “Mr Turner is incompetent”
Why? Just because his views on investing is different than yours? I disagree! GT knows more about finance & dogs than you!
lol…no kidding. Having said that, you should re-read what I actually wrote instead of what you *think* I wrote.
Ya. Exactly. You just got here first.
Accurate information is always helpful. Maybe Mike will show up again and enlighten us on how his numbers add up.
Mike, you are correct, most folks won’t get the max CPP but you can certainly get the most out of OAS by deferring to age 70.
Will some people defer to age 70 – some might and probably should. Others, not so much. A great case can be made to defer OAS if you intend to use up some of your personal, tax-deferred or taxable, equity assets before age 70 and need the inflation-protection.
Years to go but I could be a test case. I am strongly considering deferring OAS to 70 for me, taking it at 65 for my wife to replace her lost pension bridge @ that age, and delay CPP to 70 for both of us. I believe this will give us MORE net income over time, and provide better indexed longevity insurance that we otherwise won’t have.
I know some folks that can run some numbers…you do too. You would be a very good test case for deferral given your assets from what I know!
I’ve run CPP numbers ages 60 right through 70 for both of us, using a couple of excellent sources that I’m pretty confident if not exact are very close. OAS is more straightforward. As we get closer to eligibility for both OAS and CPP standard timing I’ll certainly do a little more work for verification.
Yes, I think in our circumstance with our plans deferral is very worthy of serious consideration.
I think so. At 45, I’ve got 20 years to consider when to take OAS but I’m getting more convinced it will be age 70 for me.
CPP, I would like to think age 65. As you know, time will tell!
Bull says: “I’ve run CPP numbers ages 60 right through 70 for both of us, using a couple of excellent sources”
What excellent sources?
Financial planning software with folks that have done this for many clients Mike.
I’ve posted both of these in the past. The first one will give all ages. Use at your own discretion. I’ve also done my own manual calculations carefully after reading up on D Runcheys formulas. He seems to be the best (for fee) service which is why I’m sure Mark has sought him out. I believe Service Canada will also give you on a one time basis 3 different ages.
The main sticking point to me with deferring CPP is the survivor benefit, since we also are not concerned with heirs for our assets. OAS would also have an issue although the 1 year retroactive would apply. If both live normal averages all is good, otherwise there can be some loss with an early death. In some cases this may not really be a hardship for surviving spouse and we might fit into that category. If both or one lives much longer than average then obviously deferring is a pretty safe bet. Everyone will have to figure this out for themselves on what works for their situation.
Great stuff RBull and always generous to share.
@Mark, hard to say. Lots of years ahead. From the progress you’re reporting it seems you’ll be in fantastic financial shape regardless.
Final decisions here very likely won’t be until age 65, so some years to go. Can’t see taking CPP early. I like the idea of 50K todays dollars+ indexing in CPP/OAS in ~10 years and just drawing on our own investments in the meantime, for reasons I’ve posted on another thread here. There are pros and cons. We’ll see.
Ya, for you, geez – you and Lloyd and others are set. You’ve done so well for yourselves. You have options. It must be so liberating.
Thanks Mark. Maybe someone will get something more out of it.
Thanks, but c’mon now, you’re well on your way to higher levels!
Yes, thankfully at this point we’re still on track to have some options.
We have done well. Mostly luck with a little hard work and perseverance thrown in. And acknowledging that, I have no qualms about not getting some benefits. In fact I invite it to some extent. I do not want to be a burden on future generations as I believe they’ve been handed a plate of crap as it is. I also feel an obligation to pay something back to society for that which we have been granted. Canada and Canadians do not owe us anything, on the contrary we owe it, and them.
Yes, you have done well! Good of you re: “…feel an obligation to pay something back to society for that which we have been granted.” I don’t think many people feel the same way sadly, far beyond OAS considerations I know.
I’d be interested in seeing how your numbers add up. Maybe you can break this down for us and give us an example.
Assuming an inflation rate of 2% and a return on investments of 5% (inflation + 3%), in our case, my calculations and that of an independent financial planner, using sophisticated planning software, found that if my wife and I start our CPP and OAS as early as possible, the crossover point occurs in our mid-80s. Now, if one of us dies, say in our 70s, the crossover point will move towards the survivors late 80s and perhaps into their mid-90s. This is because the survivor benefits are less than the benefits that were received by the deceased spouse i.e. their “increased” benefits now count for very little.
Doug’s table in this article helped bring some clarity to what we are most likely going to do. We are firmly in the left column – indexed DB, and we want to leave some money for our kids (was mentioned in the right column as a reason for taking it early).
Another consideration for taking CPP and OSA early is to keep your taxable income lower. When both spouses are alive, income splitting can keep you out of the higher tax brackets and away from clawbacks, but when one spouse dies, all that income (DB, LIFs, etc) is now in the name of just one person. Moving early CPP and OAS payments to TFSAs could help reduce tax and clawbacks in such an event. Having said that, I haven’t crunched the numbers yet.
Thank you Mark and Doug for this extremly useful information.
For clarity: The “crossover point” in our situation is in our Net Worth, and not the point at which what we have received from early CPP is outweighed by the extra monthly income of starting CPP at age 65. The analysis of our retirement plan with CPP starting at age 60 and OAS starting at age 65 includes the investment of the early CPP benefits and the different tax bands we fall into with and without taking CPP at age 60. On reviewing the analysis, I see that we also looked at how things worked out with an inflation rate of 3%; the year of the crossover point didn’t change i.e. it was in our mid-80s, or to be specific, age 86 and 84.
The conclusion that we came to is that you have to look at the entire retirement plan and how it fits together into the tax structure [as we know them today], and of course, make assumptions about rates of return, inflation, tax rates, and how much you want to spend in each year of retirement.
Clearly, what works for one person, or couple, does not apply to all cases. In our case, we won’t see the benefit of starting CPP at 65 vs 60 until we are in our mid-80s. I suspect that delaying CPP and OAS beyond age 65 will only move the crossover point into our late 80s and possibly into our 90s. If one of us should die before the crossover point is reached, then there’s the potential of losing out on some of the benefit of the increased CPP and OAS payments when starting them later, and, if at any point before we reach the crossover point we both die, then our kids will have a larger inheritance because we started CPP at 60 and OAS at 65.
Having said all of the above, am I missing something that should be compelling enough to convince me to delay starting my CPP and OAS until age 70, or even just not start my CPP at 60?
Looks like a thorough analysis Bob and your conclusions seem solid given your stated situation and goals. Good job. Smart to ask more questions.
The only points I would make is your estimated rate of return and inflation are the biggest variables in your cross over point, and we don’t know how you’re invested or what your investing costs are that impact returns, as long as you have considered this. Also comparitively more govt benefits would be safer than mkt investments and have an assumed lower return. I’m using 3.5% -1% over inflation for balanced portfolio for planning purpose. Returns are well over that now in 5 yrs of retirement but markets have been mostly buoyant.
We hit all of the points on the right side of the chart, but know it may be hard to resist ready money before deferral periods.
The only thing I might emphasize is that the investment income/growth of the early payout plan is likely assumed based on past performance, whilst the increase in benefits of delaying is a known quantity. It behooves one to compare risk factors and be totally aware of what could happen as well as the likelihood of it happening. As has been pointed out by numerous folks, this type of decision has a lot of personal factors involved that may or may not be relevant to all. IOW, it depends.
‘morning Mark. I’ve decided to get Doug to run some CPP numbers for me. I looked at his site and like the way he lays out the report. I have to send away for my Statement of Contributions first. I’ve tried to sign up for the online access but have yet to have any success, my issue not theirs. Once I get that then I can decide when to take my CPP. The wife is automatic conversion from the disability so that requires no thought or decision. Will decide on OAS closer to 65. Have a good day at work, I’m going to the city! 😉
Good stuff. Doug is a good guy and he’s more than happy to run some math for folks who might want any second opinion.
Good stuff Lloyd. Yeah, I had an issue setting up our accounts with service canada years ago that took some fiddling.
I agree the layout Doug has is good. You can look at the total payouts for all the various years and see where it might make the most sense for you considering all other factors.
Very much agree Bob….re: “…you have to look at the entire retirement plan and how it fits together into the tax structure [as we know them today], and of course, make assumptions about rates of return, inflation, tax rates, and how much you want to spend in each year of retirement.”
I know for us, I can see us taking both CPP and OAS at age 65; at least right now. This will be confirmed in the future though 🙂
Thanks for your detailed comment and insights.
Mike, really, no point in calling out comments that way.
Good information to know but we’ve got a minimum of six years to go so I’ll wait until we get closer. With the way our governments work, the rules could change a few times by then. Having said that, we might even not bother with it, we’ll see how it goes.
You got it Lloyd….we are at the mercy of folks we vote in 🙂
Great to have the expert Doug back to your blog to give us all the details and clear up any confusion on these programs. Lots of good information here.
I’m sure more Canadians would delay CPP and OAS if they looked more carefully at all the facts before jumping immediately to get cash as fast as they can.
Agreed. There are many “money on the table people” + “bird in hand” Canadians who want nothing more than to take the money as soon as they can get it. That can be the right decision, although not always!
I’ve read some numbers on those who defer each one of them but recall details now. It’s low percentages. On the other hand OAS deferral has only been allowed for about 5.5 years now.
The only other rule changes I can recall for a lot of years was the age change phase in to 67 by the Conservatives that the Liberals cancelled.
Probably very controversial but I am in favour of that change and lowering clawback amounts, in light of advancing longevity of Canadians and to make it less generous to arguably “wealthy” retirees, in order to preserve the “seniors welfare” program and be fairer to all generations. GIS should also be amended to improve benfits for those truly needing them and eliminating “wealthy” Canadians from receiving it without considering others assets like homes, income from TFSAs or other loopholes.
I’m very much in favour of changing the OAS program. I really don’t like the idea of subsidizing any retiree making > $100K in their 70s or 80s. That makes no sense to me. 🙂
Yes. However I wonder how big this issue this is. How many retired Canadians make over 75K+indexing indivdually and how much money in total is at stake from all clawback? I searched but couldn’t find anything.
I believe another important change is counting TFSA’s regarding collecting government benefits. Not paying income tax on TFSA withdrawals is the fundamental benefit for this account. However concerning qualifying for govt benefits GIS and OAS, it makes little sense to count all other income sources but ignore TFSA withdrawals. It would seem this was poorly thought out and will become a larger issue as more people have TFSAs and the assets really start to add up.
Okay, I’ll settle down and have another cup of coffee.
The government – poorly thought out? C’mon, that would never happen!
Yeah I know….never happens. LOL
I agree fully RBull and Mark. It makes little sense for the affluent to be allowed to access a program like GIS in retirement, and I’m not opposed to the OAS clawbacks either – these programs are designed for low and middle income retirees, not a perk for the affluent who can use shelters, TFSAs or other means to access these. I didn’t realize OAS was the largest government pension, so given the precarious nature of public finances it makes sense for these rules to be tightened.
Totally agree BartBandy – our future financial health depends on ensure our programs are as effective and as efficient as possible. Not convinced our government gives a crap though 🙁
All the best to you in 2019.
Well that makes a few of us now. Yes, I agree.
It seems OAS is considered sacred to most seniors regardless of their income.
“Total annual OAS expenditures are projected to grow from $49 billion in 2016 to an eye-popping $247 billion by 2060.”
I have also moved that into my flipboard retirement page/magazine. Folks should check out flipboard for organizing articles and blogs and more. It’s free, an incredible resource.
Haven’t used it yet but will consider.
Hi Mark and Doug, great post, very informative.
Hey Mark, I did not see any retirees in their 90’s signing up for an annuity so I am good, and likely will not feel the need to monopolize this comment thread, ha.
Once again, this is one of the main areas of misconception. Canadians should consider delaying CPP and OAS if possible, if they have other resources. But most follow their emotions, not the math.
Yes, the majority of people have emotions trump math is many cases – we’re humans 🙂